RBI declines priority sector status for wind power loans

THE Reserve Bank of India has declined to include loans given to the wind power sector under priority sector lending.

Responding to a request from the Indian Wind Power Association, a representative body of windmill owners and wind turbine manufacturers, the RBI has said that with the banking system as a whole having reached the priority sector-lending target, addition of new segments in the priority sector would not necessarily lead to additional flow of credit to these segments.

On the other hand, it said, it might lead to "crowding out of the existing small loans under the priority sector."

In its representation, the association said though some banks had provided loans for setting up windmills, the financial assistance extended by them was minimal.

The association felt that the demand for funds from the banking system for setting up windmills could go up, especially because of the thrust being given by the Government to the renewable energy sector.

The association said the banking system could play a more active role in extending financial assistance for setting up wind turbines.

Wind power was a capital-intensive technology, the association said and pointed out that about 75 per cent of total costs was required as capital upfront, and the economic performance of a wind power project was dependent on the interest rates.

The association wanted the RBI to direct banks to provide loans to the wind power sector at concessional rates of interest and also expand the definition of priority sector advances by bringing wind power sector under this category.

In its response, the RBI said that loans to the wind power sector would be in the form of infrastructure loans, which were of substantially higher amounts and for longer periods.

Thus, bank credit to other segments of priority sector, particularly the small borrowers, might be affected if infrastructure finance was included under priority sector lending.

On request for concessional rates of interest, the RBI said it was up to individual banks to decide on the interest rates, depending upon the benchmark prime lending rate.

(This article was published in the Business Line print edition dated January 3, 2006)

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